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  • 1. All About Stock Options

    My goal is to give you a basic understanding of what stock options are all about without hopelessly confusing you with unnecessary details. I have read dozens of books on stock options, and even my eyes start glazing over shortly into most of them.

  • 2. Check Out Auto-Trade

    Auto-Trade is a service offered by several on-line brokers. Auto-Trade makes it possible for an investor to carry out an options strategy in his own account without becoming an options guru or making all the trades on his or her own.

  • 3. Never Buy a Mutual Fund

    Never buy a mutual fund unless it is a no-load index fund with the lowest cost structure. (I will tell you where to find it later.)

  • 4. Turbocharge Your IRA

    Most smart people have set up a Roth IRA, 401(k), or other qualified retirement program. For some of them, it may be the only stock market investment they own.

  • 5. Double Your Money the Lazy Way

    In spite of the odds against winning, many people seem to like to invest in individual stocks – sort of like picking horses at the race track.

  • 6. The 10K Strategy

    The 10K Strategy is my favorite investment strategy. I have used it to make an average of over 50% a year for three out of four consecutive years. I have now added a twist to the strategy so that annual returns might be less than those years but there should be a much higher likelihood of its succeeding.

  • 7. Trading ETF Options

    Exchange-Traded Funds, or ETFs, are index funds that trade just like stocks on major stock exchanges. All the major stock indexes have ETFs based on them, including: Dow Jones Industrial Average (DIA), Standard & Poor’s 500 Index (SPX), and Nasdaq 100 Composite (QQQQ).

  • 8. Other Stock Option Resources

    Learn about some of my favorite stock option resources.

Elevator Pitch Story of Terry’s Tips

Terry Allen started the Terry’s Tips in 2001 as an educational newsletter  where various options strategies were tested in real time with real dollars. As many as eight portfolios were simultaneously carried out, each one in a separate brokerage account and paying full commissions. Subscribers saw every trade in every portfolio, and could follow one or more of the strategies in their own accounts, either on their own or through an auto-trade service offered by several brokers where all the portfolio trades were duplicated in their own accounts.

Over the years, many of these strategies enjoyed consistent gains for long stretches of time, only to see them all disappear in one disastrous day or week.  One strategy, however, seemed to out-perform all the other strategies over the long run.  We had dubbed it the 10K Strategy (because it was neither a sprint or a marathon, but something in between).

For the past five years ending through 2021, the 10K Strategy has notched average annual gains of over 60% in our actual portfolios after paying all the commissions.

For the first five months of 2022, extreme volatility came along (something that this strategy does not like), and we lowered our risk by retaining about half our portfolios in cash.  The market was down badly (S&P 500 off over 18%, the Nasdaq down 22%) but the composite 10K Strategy portfolios gained over 10% over these five months. This works out to a 20%+ gain based our amount at risk.

The 10K Strategy is sort of like writing calls, but on steroids.  Instead of buying stock and selling calls against your shares, we buy longer-term options (both puts and calls) which decay at a much slower rate than the shorter-term (usually weekly) options that we sell.  Since these longer-term options cost a fraction of what the stock would cost, the potential return on investment is considerably higher with this options strategy.

The key to the strategy is the difference between the decay rates of the long and short options.  The major challenge is managing risk by selecting strike prices both above and below the stock price, and balancing the risk profile of the positions on a daily basis.

Unlike owning stock, longer-term options are deteriorating assets, just like the shorter-term options that we sell.  Maintaining a comfortable risk profile requires nimble trading and balancing the positions essentially every working day or week. 

In short, it takes a lot of work. For this reason, most Terry’s Tips subscribers choose to select one or more of our portfolios (most based on ETF underlyings such as SPY, IWM, QQQ) and sign up for an auto-trade service to have all these trades automatically be made in their accounts. 

A broker you have probably not heard of, Tradier, coupled with a Toronto-based broker called Global AutoTrade, performs this auto-trade service for a flat commission fee of only $10 per month for our subscribers, saving them hundreds if not thousands of commission dollars each year.

Who is Terry Allen? Terry earned his MBA at the Harvard Business School and eleven years later, completed all the requirements except the dissertation for a Doctorate in Business Administration at the University of Virginia. As part of his academic work, he created a statistical model which calculated the theoretical value of any option based on several measurable variables.  The options market was just getting established, and option prices were extremely inefficient (either too-high or too-low).   

At this point, he dropped out of school and got a seat on the Chicago Board of Options and traded as a market maker on the floor of the exchange. His model enabled him to make extraordinary gains for several months until two professors at the University of Chicago published a similar model (only one variable not in Terry’s model).  This model, called the Black-Scholes model, (later to earn these professors a Nobel Prize), gave every trader the same advantage that Terry had enjoyed, and his extraordinary earnings were whittled away.

He returned to Virginia to complete his Doctorate, but was hopelessly addicted to options trading which he has continued to do virtually every day the market has been open ever since.  Options trading has been quite profitable for him, and enabled him to give away millions of dollars to charitable causes in his home state of Vermont, including building a large outdoor swimming pool for the Burlington Boys and Girls Club and giving away hundreds of thousands of dollars in scholarship aid to first-in-family college students at Champlain College where he served as a trustee for eleven years.

For nearly two decades, Terry has carried out personally or managed the portfolio trades of the Terry’s Tips portfolios.  In 2019, he brought in another (younger) experienced trader to manage these portfolios using the 10K Strategy, and the recent successful results are largely due to the efforts of his associate who totally understands the trading rules developed over the years at Terry’s Tips.

How to carry out the 10K Strategy: We have published a White Paper which spells out the precise Trading Rules for carrying out the 10K Strategy.  This White Paper is delivered to each new Terry’s Tips subscriber at the outset of his or her subscription.  Many subscribers sign up for a single month and learn all these Trading Rules, and watch the portfolios evolve each week for a month.  Then they cancel and carry it out on their own using an underlying that they like (any stock or ETF which trades options can be used as an underlying security).  That is fine with us.

Other subscribers realize the volume of effort involved in carrying out this strategy, and they continue on with us (often for many years) using an auto-trade service provided by some brokers, including Tradier.  This is even finer with us.

TERRY’S TIPS STOCK OPTIONS TRADING BLOG

February 1, 2023

February 1, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, as given to our Terry’s Tips Insider Members as part of the Saturday Report. With earnings season in full swing, we had lots to choose from this week. We’re back in the chip sector with a bullish play.

Before getting to the trade, there’s still time to jump on our huge discount offer to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions).  In 2022, our portfolios beat their underlying stock performance by an average of 22%

We’re still running a special new-year sale that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips  for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us in 2023! Now on to the trade …

Feeling Chipper

KLA Corp. (KLAC) provides process-control technology to the semiconductor industry. The company reported earnings after the bell on Thursday that beat estimates on both the top and bottom lines. But the fly in the ointment came in the form of a lowered outlook for the third quarter that fell below expectations. The stock fell nearly 7% on Friday, its largest one-day, post-earnings decline in eight years.

So, why the optimism? First, analysts didn’t seem all that concerned. While there was one downgrade on the news, the stock was hit with several target price increases. The current average price target for KLAC is only about 8% above Friday’s close. That’s far from unreasonable given how analysts usually are more ebullient toward tech names. And the average analyst rating is a moderate buy, which leaves room for future upgrades.

Second, KLAC’s chart shows that Friday’s plunge, while perhaps unsettling, did not signal the end of the stock’s current strong rally. Even with the Friday drop, the stock has gained 60% in just three months. The rally has been guided by the combined support of the 20-day and 50-day moving averages. The 50-day is the key to this trade, however, as it has not allowed a daily close below it since early November. It also served as key support during a pullback in late December. Note that the short strike of our put spread is below the 50-day, so the stock will have to pierce this support to move the spread into the money.

Third, while the early returns on chip stocks (including Intel this week) suggest some rougher waters next quarter, the sector as a whole is rallying. The VanEck Semiconductor ETF (SMH) has been on a strong, month-long rally and hit a five-month high during Friday’s session.

If you agree that KLAC will continue to find support at its 50-day moving average (blue line), consider the following trade that relies on the stock staying above $390 (red line) through expiration in 6 weeks:

Buy to Open the KLAC 10 Mar 385 put (KLAC230310P385)
Sell to Open the KLAC 10 Mar 390 put (KLAC230310P390) for a credit of $1.30 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $399.37 close. Unless KLAC rises quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $128.70. This trade reduces your buying power by $500, making your net investment $371.30 per spread ($500 – $128.70). If KLAC closes above $390 on Mar. 10, both options will expire worthless and your return on the spread would be 35% ($128.70/$371.30).   

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you.

~ Maya

Thank you again for being a part of the Terry’s Tips newsletter. Any questions?  Email Terry@terrystips.com

Happy trading,

Jon

January 24, 2023

January 24, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, as given to our Terry’s Tips Insider Members as part of the Saturday Report. With earnings season underway, we’re back to our typical earnings plays with a return to the bearish side.

Before getting to the trade, there’s still time to jump on our huge discount offer to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions).  In 2022, our portfolios beat their underlying stock performance by an average of 22%

We’re still running a special new-year sale that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips  for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us in 2023! Now on to the trade …

Tarnished Goldman

With earnings season now underway, we can focus on companies that have recently reported. Though the docket was sparse this past week, there were a few juicy names to choose from. One was Goldman Sachs (GS), which reported a miserable quarter before the week’s trading began on Tuesday.

Earnings plunged 66% from a year earlier on slower corporate dealmaking and 48% lower investment banking fees. Earnings per share came in at $3.32, far below the expected $5.56. FactSet noted it was the bank’s largest miss in years. Revenue also dropped and missed estimates.

The stock reacted by falling 6.4% on Tuesday, its second-largest one-day, post-earnings decline since April 2009. The week didn’t get any better for GS, as reports came in on Friday that the Federal Reserve is investigating whether the bank had the appropriate safeguards in its consumer business. The stock fell 2.5% on a day when stocks were higher.

The stock’s 8.6% plummet last week pulled it below its 20-day and 50-day moving averages. The 50-day is rolling over into a decline for the first time in three months, while the 20-day appears poised to head lower as well. We are going with a bearish call spread, with the short call strike sitting between the 20-day (blue line) and 50-day (red line) trendlines. However, given the 50-day’s current path, it should fall below this strike and serve as a second potential point of resistance to keep the spread out of the money.

If you agree that GS will continue to struggle, consider the following trade that relies on the stock staying below $360 (green line) through expiration in 6 weeks:

Buy to Open the GS 3 Mar 365 call (GS230303C365)

Sell to Open the GS 3 Mar 360 call (GS230303C360) for a credit of $1.25 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $341.84 close. Unless GS falls quickly, you should be able to get close to that price. The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $123.70. This trade reduces your buying power by $500, making your net investment $376.30 per spread ($500 – $123.70). If GS closes below $360 on Mar. 3, both options will expire worthless and your return on the spread would be 33% ($123.70/$376.30).

Any questions?  Email Terry@terrystips.com

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you.

~ Maya

Any questions?  Email Terry@terrystips.com.

Thank you again for being a part of the Terry’s Tips newsletter.

Happy trading,

Terry

January 9, 2023

January 9, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, generated by our trading team, for your consideration. We’re going with another ETF this week, but this time back on the bearish side.

Before getting to the trade, there’s still time to jump on our huge discount offer to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions).  In 2022, our portfolios beat their underlying stock performance by an average of 22%

We’re still running a special new-year sale that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips  for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us in 2023! Now on to the trade …

Attention Shoppers

With earnings reports non-existent, we’re sticking with ETFs again this week, this time on the bearish side with the retail sector. The SPDR S&P Retail ETF (XRT) is a broad-based, equal-weighted index of around 100 retail stocks. No stock is worth more than 1.5% of the portfolio and the top 10 holdings are littered with small niche names, some of which I’ve frankly never heard of (Sally Beauty, Franchise Group, Leslie’s). Amazon and Costco, on the other hand, make up a mere 2.2% combined.

XRT had a rough 2022, losing about a third of its value. That puts it on par with tech stocks, which it is not, and trailing the broader market. Should we expect a rebound in 2023? I won’t hazard a guess. But we know the Fed will continue to raise rates to tame inflation. Many expect some sort of recession. The outlook appears muddy at best and bearish at worst.

XRT has staged a mini-rally to start 2023, gaining 3.8% in the first week. But the ETF is now bumping into its 50-day moving average. However, the 50-day hasn’t provided much resistance or support for the past several months. Of greater concern is the overhead 200-day moving average, which has been declining for more than a year. This trendline marked a top in August and kept XRT in check in November, allowing just two daily closes above it.

This bearish trade is a play on XRT once again faltering at the 200-day, which sits 3.7% above the Friday closing price. Note that the short call strike of our spread (red line) sits above the 200-day (blue line), meaning this resistance will need to be broken to move the spread into the money. Options traders have a similar outlook, pricing puts higher than equidistant out-of-the-money calls.

If you agree that XRT will fail to overtake the 200-day, consider the following trade that relies on the ETF staying below $66 through expiration in 6 weeks:

Buy to Open the XRT 17 Feb 69 call (XRT230217C69)

Sell to Open the XRT 17 Feb 66 call (XRT230217C66) for a credit of $0.85 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Monday’s $62.46 close. Unless XRT drops quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $83.70. This trade reduces your buying power by $300, making your net investment $216.30 per spread ($300 – $83.70). If XRT closes below $66 on Feb. 17, both options will expire worthless and your return on the spread would be 39% ($83.70/$216.30).   

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you. ~ Maya

Thank you again for being a part of the Terry’s Tips newsletter. Any questions?  Email Terry@terrystips.com

Happy trading,

Terry

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Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

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